SAS Group, which owns Scandinavian Airlines, can’t continue
to rely on funding from Sweden, Denmark and Norway and is most
likely to end up as a unit of Deutsche Lufthansa AG, while
Poland’s LOT has little room to pare operations that are already
much reduced, O’Leary said today in Oslo.

“The only future for SAS is to be sold, probably to
private ownership,” O’Leary said in an interview in the
Norwegian capital. “In five years’ time it’s more likely than
not that SAS will be a subsidiary of Lufthansa. But Lufthansa
doesn’t want to buy it yet until SAS has been restructured.”

The fate of SAS, which rose 16 percent, may determine the
outcome of expansion plans at Norwegian Air Shuttle AS, Europe’s
fourth-biggest discount carrier, O’Leary said, with Budapest-based Wizz Air Ltd., the No. 5, a likely beneficiary of the
decline of LOT, as Polskie Linie Lotnicze Lot SA is known.
Dublin-based Ryanair is already the biggest carrier serving
Poland, the CEO says, and has identified Scandinavia as a growth
target after focusing more on southern and Eastern Europe.

Consecutive Losses

Europe’s sovereign debt crisis is weighing on carriers from
the Balkans to the Baltic as austerity programs coincide with
high fuel prices and a European Union clampdown on aid. At the
same time, Air France-KLM Group, Germany’s Lufthansa, and
British Airways parent IAG, the region’s three major airlines,
are shying away from takeovers to focus on stemming losses.

Stockholm-based SAS, which has suffered annual net losses
since 2007, said on Dec. 12 it aims to be profitable on a pretax
basis in the revised fiscal year that began Nov. 1 as it pursues
plans to sell units and cutting hundreds of jobs.

“We admire the management’s substantial efforts to deliver
its survival to date,” Andrew Lobbenberg, an analyst at HSBC in
London, said today in an investor note, upgrading SAS to
“neutral” from “underweight.” SAS probably has “the most
challenged starting point of any European flag carrier in terms
of geography, network structure, labor and fleet,” he added.

SAS rose 1.40 kronor in Stockholm, the most since Nov. 19,
closing at 10.30 kronor, the highest since Nov. 7, 2011.

While one of only two pan-European discount brands, Ryanair
-- with EasyJet Plc -- is “poorly established” in the Nordic
nations, where Norwegian Air has an attractive business model
and is taking market share “hand over fist,” Lobbenberg said.

Niche Player

Norwegian, which ordered 222 single-aisle planes last
January, has done a “good job” in recent times, O’Leary said,
retreating from European expansion to focus on Scandinavia. The
Fornebu-based carrier resembles Wizz in finding “niches” to
grow in markets where there is a weakened competitor, he said.

“A lot depends for Norwegian on what happens to SAS,”
O’Leary said. “If SAS falls over it becomes a lot easier for
Norwegian to take all the aircraft ordered. If SAS survives,
which I think they will, it may prove more challenging.”

In eastern Europe, Hungarian flag carrier Malev Zrt. folded
after 66 years on Feb. 3 last year, when an EU decision
compelling it to repay aid led the state to pull the plug.

Poland’s government said last week that state-owned LOT
would cut 30 percent of jobs and reduce the fleet to 25 planes
from more than 40 following an annual loss of 200 million zloty
($64 million). The company, which fired CEO Marcin Pirog last
month, has been told to pare operations after receiving a 400
million-zloty loan and seeking 1 billion zloty of aid.

Fleet Talks

“LOT is already so small you can hardly shrink it any
more,” O’Leary said today. “The challenge for SAS and LOT is
that in a marketplace where people want low fares, you can’t
have high costs or high fares and high fuel charges.”

SAS spokeswoman Malin Selander declined to comment on
O’Leary’s remarks. LOT said it’s working on details of a
restructuring following the setting of guidelines and will make
an announcement after a final decision has been reached.

O’Leary said that with the fleet poised to reach 300 Boeing
Co. 737-800 jets in 2013, Ryanair is in the market for about 200
new planes, and that talks with the U.S. company are ongoing.

“Boeing have plenty of availability in the order book,”
the CEO said. “We are in the fairly early stages of talks to
see if we can reach an agreement on price.”

O’Leary said that Ryanair is looking for deliveries in
2015, 2016 and 2017 -- the year that Boeing’s upgraded 737 Max
jetliner is due to enter service. That points to an order for
the current 737 or rival models.